In late June, the International Sustainability Standards Board (ISSB) released its first two standards: the IFRS S1 and S2.
Companies globally welcomed these standards because they consolidate many existing reporting frameworks in which they are already participating — both voluntarily and, increasingly, as mandated by governments and stock exchanges. Investors were also appreciative of the standards as they prioritise financial materiality instead of requiring double (i.e. social and environmental impact) materiality.
What you need to know about the ISSB
The first standard, IFRS S1, defines the requirements for companies to communicate their sustainability-related risks and opportunities. The second, the IFRS S2, sets out specific climate-related disclosure requirements covering a holistic climate strategy such as greenhouse gas (GHG) emissions, transition plans, the impacts of climate risks using scenario analysis, and mitigation/ adaptation plans.
It is anticipated that these standards will gradually be adopted by regulators. Australia, Canada, the UK, Singapore and Hong Kong have already announced intentions to align their mandatory sustainability reporting requirements with the ISSB. The standards will apply to annual reporting periods starting from January 2024, with companies issuing disclosures against the standards in 2025. However, as the ISSB is a voluntary standard, applicability depends largely on adoption timeframes in specific jurisdictions.
Building on the TCFD
The standard draws heavily upon the
Task Force for Climate-related Financial Disclosure (TCFD) which has to date been considered the gold standard for sustainability disclosure and has been adopted in multiple jurisdictions globally. From 2024, the ISSB will also take over the monitoring of progress on companies reporting against the TCFD.
The climate-specific standard IFRS S2 adopts an identical structure to that of the TCFD, following the same four pillars of governance, strategy, risk management, and metrics and targets. Yet in some areas, it also goes further than the TCFD.